Good day, ladies and gentlemen, and thank you for standing by. Welcome to the TransDigm Group Incorporated First Quarter 2017 Earnings Conference. At this time, all participants are in a listen-only mode to prevent background noise. We'll have a question-and-answer session later and the instructions will follow at that time. And as a reminder, this conference is being recorded. Now, I would like to welcome and turn the call to Ms. Liza Sabol, Head of Investor Relations.

Thank you, Carmen. I would like to thank all of you that called in today. And welcome you to TransDigm's fiscal 2016 first quarter earnings conference call. With me on the call this morning are TransDigm's Chairman and Chief Executive Officer, Nick Howley; President and Chief Operating Officer, Kevin Stein; and Chief Financial Officer, Terry Paradie. A replay of today's broadcast will be available for the next two weeks. Details are contained in this morning's press release and on our website at transdigm.com. Before we begin, the company would like to remind you that statements made during this call, which are not historical in fact, are forward-looking statements. For further information about important factors that could cause actual results to differ materially from those expressed or implied in the forward-looking statements, please refer to the company's latest filings with the SEC through the Investors section of our website or at sec.gov. The company would also like to advise you that during the course of the call, we will be referring to EBITDA, specifically EBITDA As Defined, adjusted net income and adjusted earnings per share, all of which are non-GAAP financial measures. Please see the tables and related footnotes in the earnings release or a presentation of the most directly comparable GAAP measures and a reconciliation of EBITDA, EBITDA As Defined, adjusted net income and adjusted earnings per share to those measures. With that, now let me please turn the call over to Nick.

Good morning. And thanks to everyone for calling in today. It looks like we got a pretty good crowd here calling in now. Today, as always, I'll start off with comments about our consistent strategy. I then like to give some color on both our military business and a few other topics relating to Q1. I'll then summarize the Q1 performance and an update on the guidance. Kevin will then go through some of the operating specifics for Q1, and Terry will run through the financials. To restate, we believe our business model is unique in the industry, both net consistently and its ability to sustain and create intrinsic shareholder value through all phases of the cycle. About 90% of our sales are generated by proprietary products and about three quarters of our sales come from products, for which we believe we are the sole source provider. Over half our revenue and a much higher percent of our EBITDA comes from aftermarket sales. Aftermarket sales have historically produced higher margins and provided relative stability through the cycles. Our longstanding goal is to give our shareholders over time, private equity like returns with the liquidity of a public market. To do this, we have to stay focused on both the details of value creation as well as careful management of our balance sheet. We follow a consistent long-term policy. First, we own and operate proprietary aerospace businesses, with significant aftermarket content. We have a simple, well proven value-based operating strategy, based around our three value-driver concepts. Third, we maintain a decentralized organization structure and a unique compensation system that's closely aligned with our shareholders. Fourth, we acquire proprietary aerospace businesses with significant aftermarket content, where we see a clear path to private equity like returns. And lastly, we view our capital…

Thanks, Nick. I'm going to provide a little more color with respect to Q1 fiscal year 2017 performance. First off, Q1 generally has about 10% less shipping days than the other three quarters of our fiscal year. But as Nick has stated previously, Q1 of fiscal year of 2017 had an additional 3% decrease in manufacturing days due to our holiday schedule and any planned plant shutdowns. As Nick stated earlier, the exact impact of this decrease is difficult to quantify across our operating units. For Q1 details, total company GAAP revenues and EBITDA As Defined were strong, with revenue up 16%, EBITDA As Defined up 21%. Organic revenue was up 3.5% for the quarter versus prior-year quarter, and EBITDA As Defined was strong at 47.3% of sales. The strength in EBITDA As Defined as a percentage of sales was due to a mix shift to a higher aftermarket sales content. Now, let's review our revenues by market category, again, on a pro forma basis versus prior-year Q1; that is assuming we own the same mix of businesses in both periods, like the measure for same-store sales. In the commercial market, which makes up about 70% of our revenue, our total commercial OEM revenues were down about 4% versus prior Q1. Commercial transport OEM revenues, which make up the vast majority of our commercial OEM revenue, were slightly down versus prior-year Q1. Bookings for this segment, and by bookings, I mean, incoming orders, increased modestly for Q1 versus prior year and outpaced fiscal year 2017 Q1 sales. Booking fluctuations in the commercial OEM market are most likely timing-related and have been recently impacted by the publicized wide-body rate reductions at Airbus and Boeing, and any related inventory management in the supply chain. At this point in the year, we remain…

Thank you, Kevin. I'd like to expand on a few items included in our quarterly financial results, and then provide some color regarding the impact from potential tax policy changes. First quarter net sales were $814 million, up $112 million or approximately 16% greater than the prior year. The collective impact of the acquisitions of Breeze-Eastern, DDC, and Young & Franklin/Tactair contributed $88 million of additional sales for the period. Our first quarter gross profit was $444 million, an increase of 19%. Our reported gross profit margin of 54.6% was 1.2 margin points higher than the prior year. Excluding all acquisition-related non-operating expenses, our gross profit margins versus Q1 last year improved approximate 2.5 margin points due to the strength of our proprietary products, continually improving our cost structure and favorable product mix. Our selling and administrative expenses were 12.5% of sales for the current quarter, compared to 11.7% in the prior year. Excluding acquisition-related expenses and non-cash stock compensation, SG&A was about 11.2% of sales, compared to 9.9% of sales a year ago. The higher SG&A was primarily related to higher selling and admin costs related to recent acquisitions. We had an interest – an increase in interest expense of approximately $34 million, up 30% versus prior-year quarter. This is a result of an increase of 31% in the weighted average total debt to about $11 billion in the current quarter versus $8.4 billion in the prior year. The higher average debt year-over-year was due to borrowing an incremental $1.9 billion in June 2016, and $1.2 billion in November to primarily fund acquisitions, pay off our 2021 bonds and pay the special dividend. Also during the quarter, we entered into a new $500 million interest rate swap, fixed at 1.9%, and a new $400 million interest rate cap at…

Thanks, Terry. First, I would like to ask everyone to please limit your questions to two and then reinsert yourself into the queue, so that everyone will have a chance and opportunity to ask their questions. Operator, we are now ready to open the lines.

Thank you. And our first question is from the line of Carter Copeland with Barclays. Please go ahead.

Hey, good morning, all.

Morning.

Morning.

Morning.

Nick, just wondered, I mean, we've gone through, now, several quarters on the weaker business jet, helicopter segment there. I just wondered if you could give us some color. Are you seeing any de-stock there associated with the kind of next leg down in rates? And when do you think, if we don't see another reduction in rates 2018 versus 2017, that that portion of the business reaches a bottom, sequentially speaking?

The truth of the matter is, Carter, I don't know. The good news is it's not a very big part of our business. I look at all the – everything in the press, and I look at everybody. I look at the earnings releases and the statements by the business jet manufacturers. It's hard to get a lot of confidence in that. We think, at least last year, it was down fairly substantially, and it's starting off this year down some. There is obviously some inventory draw going on there, but I am reticent to forecast when that ends. I have to admit we have been singularly unsuccessful in calling a turn in this for the last three or four years.

Were you down sequentially...

I'm not confident...

...Q1 versus Q4?

I don't remember the answer to that. We have the numbers here. Was Q1 down versus Q4?

Yeah, in the OEM?

Business jet...

Yeah (34:57). Yeah, it is.

Okay.

You'll always – frequently, you'll be down – you got the day issue between four and one, so you'll always be down some.

Absolutely. And on the days, you said 3%. That's two work days, correct?

Yeah. Is it two?

Okay.

Yeah, two days.

Two.

Just under two days, yeah.

Yeah, it's like 2 on 61 or something; 2 on 61 and 2 on 63.

Yeah. It's both – yeah.

And the weight is up – if you weight it by operating unit, you'd get about the same number.

Okay. So, I know you said it's tough to size, but presumably, you catch up that 3% in one of these other quarters in the remainder of the year...

At some point, yeah. Yeah. But Carter, I don't know what the exact quarter-per-quarter count is in each quarter going forward.

Okay.

But as I said, it's hard to exactly pin that to what it exactly did in the quarter. But I would say it is more likely to impact the commercial aftermarket where the turns are faster, plus frankly, you have some buffer in distribution.

Okay. Okay. Thanks. I'll let somebody else ask.

Okay.

And our next question comes from the line of Ron Epstein with Bank of America.

Yeah. Hey, and good morning, guys.

Good morning.

Nick, just a quick question for you; it's something we have been asked. If you look at some of the more recent acquisitions, it seems like you've had a bigger skew towards defense acquisitions as opposed to commercial acquisitions. Is there a trend there, or is it just happened how they popped up? I mean, how do you think about the difference between making a defense acquisition versus a commercial acquisition?

Yeah. We haven't made any conscious decision to move more aggressively into the defense world. That's just what we saw. We go through the same process. We go through – we forecast. We try to see what we can do with the margins. We assume the capital structure just like a PE kind of buy. I would describe it – it's just the way we (37:03) over that period.

Okay.

It's not a conscious attempt to change the defense content.

Okay. Great. And then, one more – one last question, if I may. In the last month of the year, we saw air traffic surge. Are you seeing those kind of trends continue into the beginning of this year? Was that sort of just an end of the year make-up, or are we seeing a real pickup in air traffic?

Yeah, I can't really talk about things in our business that went past the quarter, but I would say, as Kevin and I – Kevin pointed out numerically and I talked about it directionally, the bookings – the commercial aftermarket bookings are up substantially, both sequentially they ran above the shipments and up year-over-year; and, I suspect that's reflective of some of that.

Okay. Great. Thank you very much.

And our next question comes from the line of Robert Spingarn with Credit Suisse. Please go ahead, Robert.

Good morning.

Good morning.

So, Nick on – just following up a little bit on aftermarket. I wanted to peel the onion a little bit and maybe get a sense of your guidance bridge from really – from this first quarter plus 3.5% to the mid to high single digits for the year. So, let's throw out a couple things. You've said that the commercial transport was stronger in the quarter than the average at about plus 5%. Business jet, obviously, is still week, holding that back. Fewer shipping days in the quarter, so it seems like we should add about 3% to all these numbers. But doesn't the second quarter have a tough comp and also fewer shipping days with leap year last year? And so, does this mean that all of the real strength is in the second half of the year Q3 and Q4? How do we think about the cadence on aftermarket growth as we go through the year?

Yeah, I would say that the quarterly days for the balance of the year comp the other, I just – I'm sure if you counted them, Rob, that's probably right. I just don't know the answer to that. I'd say, the main thing that gives me comfort, one, it's not unusual to start off a little slow in the first quarter. But I mostly take comfort from that the bookings are so strong. The bookings are up very substantially, and that's what gives me the best comfort.

But don't those only give you about a one quarter look? What you – in other words, what you saw in the December quarter...

Yeah, something like that...

... is going to give you a sense for the March quarter?

Yeah, I don't know that that's an exact cutoff. But that's – I think, three or four months is probably a reasonable number. So, if your question is, do I know what's going to ship in the fourth quarter? I do not. I don't – we don't have the backlog, yet. But if I look at the metrics we see, which is air travel, which is we don't see distributor inventories out of whack – that's not to say there couldn't still be some at airlines; we don't see it at distributors. And we see the incoming bookings in coming quite strong; that gives us the comfort. Obviously, we don't know, yet.

Okay. And then, just as my follow-up, what's the latest on the M&A side? How does the pipeline look? How, if at all...

Pipeline is decent. Pipeline is decent. I mean, I think pretty good. It is – it – as usual, it – usually, it's small and midsize stuff. We'd always like bigger things, within reason. We don't want them too big, because we don't want to place all our chips on one bet. But I would say it's reasonably active, Rob; reasonably active if I look at it versus other time frames.

And from a number of properties out there versus pricing, again, has that changed at all?

I don't think the pricing has changed, at least – the next thing that closes, of course, I don't know what the price will be. But I don't see any indication that the pricing has changed.

Okay.

It's – good proprietary sole source stuff with a decent amount of aftermarket is pricing.

Okay. Thanks, Nick.

Okay.

And our next question comes from the line of Myles Walton with Deutsche Bank. Please go ahead.

Thanks. Good morning.

Good morning.

Good morning.

Hey. Nick, last year, I think you had a 350-basis-point headwind in your aftermarket from business jet, helicopter and freighter versus air transport. And I think in the quarter, you said it's about 150-basis-point headwind, what's baked into the full year in that mid to high single-digit growth? Does the headwind dissipate through the course of the year, is this, kind of 150 basis points, going to be with us for the duration?

We did not forecast any significant growth in that in our base forecast. I don't remember whether it was a little lower or not. But it wasn't a significant – it wasn't significantly up or significantly down. I just don't remember whether it was zero or minus 1, or something like that. We weren't figuring on anything here in the business jet world.

Yeah, yeah. I'm just kind of curious, the underlying growth last year in air transport was 9.5%, just curious what your assumption is for underlying air transport in the aftermarket for this fiscal year is. Did you have that?

Well, I think we told you, right – oh, I see, you're trying to pull them out, right?

Yeah.

You're trying to pull them out. Yeah, yeah.

Yeah.

Yeah. I mean, you could probably look at it – I'd probably figure, commercial transport's probably 85% of the volume.

Okay.

And figure there, business jet is maybe zero, 1, maybe down 1 or 2 on the low side, up 1 or 2 on the high side, somewhere around zero, when you kind of back into it.

Okay. And then, the other question I got asked recently a fair amount was, maybe your sales in the military channel, how much is on commercial terms versus straight-up military terms, do you happen to know that?

I don't know the exact number there, and one of the reasons I don't know the exact number is it's sometimes a little informal rather than – the bigger the order gets, the more informal that gets. And the smaller ones are a little more informal, but I would guess, I would guess, if you took all of our sales to the military – to the U.S. military, direct them to the brokers, I think you're probably in the 20% to 30% range, could be a little plus or minus on that.

Okay. All right. Great. Thanks.

And our next question comes from the line of Noah Poponak with Goldman Sachs. Please go ahead. Noah Poponak - Goldman Sachs & Co.: Hey, good morning, everyone.

Good morning.

Good morning. Noah Poponak - Goldman Sachs & Co.: Nick, just as a follow-up to that last question there, are your margins different when selling through a distributor versus direct in a sort of all-else-equal or like-for-like sale?

I know – the answer is I don't exactly know that answer, Noah, but I do not believe there's any substantial difference. I mean, we essentially sell for the same price usually, in the vast majority of the cases. Noah Poponak - Goldman Sachs & Co.: Okay.

So, I... Noah Poponak - Goldman Sachs & Co.: Got it.

(44:46). Noah Poponak - Goldman Sachs & Co.: Makes sense. In the commentary about bookings being substantially ahead of revenue in the aftermarket, can you quantify that, like how fast did bookings grow year-over-year, or how much further ahead of revenue were the bookings?

The – I'm not – the answer, as I said here is that I don't know that. Let me take a look. I'm going to look now at our magic cheat sheet here. And can you – can you give that number, Kevin? Yeah. (45:21)

12%.

12%.

Yeah, about 12%. Noah Poponak - Goldman Sachs & Co.: So – sorry, bookings grew 12%.

In other words, if you – if you ship the $100, we book $112.

Thereabout. Noah Poponak - Goldman Sachs & Co.: Okay. Okay, great. And then, just one last one. Obviously – or seemingly, if you were to lose interest expense deductibility on new debt, that would come – that would be an offset to a lower corporate rate. But if I just ask you hypothetically, if you just lost interest expense deductibility on new debt and that was the only change to your tax policy, would that change how you run the business?

No. No. I don't – no, if you hypothesize that interest rates went up to 20%, I might answer that differently. But anything – any realistic range or rates that I see, I do not – I don't see that changing anything we do. I don't see anything that we've seen talked about here that would change our fundamental business or capital market strategy. Noah Poponak - Goldman Sachs & Co.: And is that just because for every dollar of additional debt you take on, the accretion from deploying that towards an acquisition is a much larger number...

That's right. That's right. Noah Poponak - Goldman Sachs & Co.: ...than the loss of – okay. Okay.

That's right. And – or conversely – or another way, not conversely, but another way of putting that is if we used it to buy stock or pay out dividends, I would look at it as the cost of our equity is 15% to 20%. And that's after tax, and there's almost no interest rate I can think of that would make that a bad swap. Noah Poponak - Goldman Sachs & Co.: Right. Great. Thanks very much.

And our next question is from the line of Sheila Kahyaoglu with Jefferies. Please go ahead, Sheila.

Hi, good morning.

Good morning.

I was just wondering, can we follow up on the M&A question just because it's been asked a lot, you'll have about $1.4 billion to $1.5 billion of cash at the end of the year, how are you thinking about that, deploying that a little bit more shorter term? And then, over the long term, is there any way you could quantify or talk about your addressable market, and how you think about attractive deals out there?

Yeah, on the – what do we do if we have $1.5 billion or $1.4 billion at the end of the year, I really don't want to speculate on that. I mean that's a long way off, we'll do what we always do, we'll look at our borrowing capacity, and we'll look at the backlog at deals, and we'll look at the credit market and the equity market, and we'll decide what to do with it. I mean, basically our choices are, right, hold it for some future acquisitions that we haven't seen yet, maybe, or start to pay back out to the shareholders. I mean that's pretty much what we always do. And as I sit here today, I just – I don't have to speculate on where we go, other than I think you can – I think you know pretty well how we think about this, and I don't see any change in our – in the way we look at it. And what was your other question?

Just on the longer term, addressable market, has the size of deals changed or the number of deals being offered changed?

I don't think so. I mean, as you know, this is a big market. There's lots of companies out there. The problem, it's not identifying companies we like, it's finding ones that are willing to sell, and that's just a continual sort of churning and then beating the bushes effort.

Got it. And then, if I could ask one more on the pro forma revenue growth versus the organic growth for the quarter, could you maybe recap how that works and just the delta between the two of them, and with the commercial OE being down 4%, aside from business jets, were there specific platforms that are driving the softness and where do you expect to pick up?

Well, I'm going to – I'm going to pass to Terry on the pro forma versus the GAAP growth because I'm not sure I'd understand that if I use same-store.

Yeah.

(49:35) the way I always look at it.

Yeah. What we do from a pro form standpoint is we look at the businesses, assuming that we've owned them for 12 months. So, we'll go back on acquisitions and look at their sales in the past, and add that in, and the growth of that – our pro forma growth was 3.5%. The GAAP number, I'm not sure, if you have that yet, that was GAAP...

That was GAAP.

GAAP...

GAAP was 3.5%, yeah. We haven't given pro forma on that number, but it's pretty close to the same.

Yeah. I mean, simplistically, the GAAP number only reflects the portion of the year that you own the business. The pro forma number assumes we own the business as the whole year.

That's right.

Right. So the underlying business was essentially a little bit better. I was just wondering what the drag was, if there was one, but maybe the difference is irrelevant?

I don't know the answer.

Okay. And then just a commercial OE pick-up throughout the year?

You mean, what is the growth?

Yeah. What's starting pick up?

Yeah. It's a reflection of our shipset content. I mean, ROE forecast is pretty simple. I mean, we know our shipset content. We know the production rates for 2017. There's a little bit of an estimate because you don't know what's – if there's a cut in 2018, it could start to ripple back in to 2017 and you have little bit of guess where there is going to any inventory movement. But I mean, our shipset content hasn't changed. The production rates, we think, we were conservative going into the year, we still think we're conservative. So that's our logic.

Okay. Thank you.

And our next question come from the line of David Strauss with UBS. Please go ahead, David.

Hey, Nick.

Hey.

At the beginning, you talked about sole source proprietary percentages there. Can you compare how that looks commercial versus defense, what the overall competitive environment looks like in commercial relative to defense?

David, I don't think it's materially different. I'd use roughly the same percent.

Okay. And I guess the question I always get, why do you think your view on why you don't generate more in the way of competition given the returns that obviously you guys put up over time, I guess both on the commercial side and the defense side?

Well, if you're not already in this business, it's just tough to get in. As you know, it's a pretty long gestation period to get into this. And product per product, they're pretty small market segments. So I think you know developed from scratch, it's relatively almost very small risk. I mean the other is, do you mean in the M&A world?

Yeah, exactly.

Yeah. In the M&A world these – they tend to be smaller businesses. So one by one they get, where I'd mostly think of is PE, they tend to be small so that they're not as exciting for the other bigger PE firms or even the mid-size ones when they first come up. Frankly, it's tough to compete against us. If you're a PE firm that is looking in a proprietary aerospace business and you're outbidding us, you got to be pretty worried, right, because the only way you're going to do that is to be making a higher bet on the margin improvement. And the other thing is a couple have started it and frankly, we bought them. Odyssey started a roll up and we bought it. McKechnie, JLL started a roll up and we bought it with McKechnie.

Okay. Thanks. And then a follow-up, the bookings rate that you saw in the aftermarket side, any way, Nick, you can slice and dice that, discretionary, non-discretionary, how much might be a boost from initial sparing on the A350 or MAX or?

I don't think there is – as I said, I don't know the exact number on the provisioning but I do not think it's very significant. We didn't see much for the Boeing 787 and I don't believe there's much to it there. I think if you look at the details, it's a pretty broad based booking pick-up across the vast majority of our businesses.

Okay. Thanks a lot.

And our next question is from the line of Ken Herbert with Canaccord. Please go ahead, Ken.

Hi, good morning.

Morning.

Hey, Nick, I just wanted to follow up. I just wanted to confirm for your military business, it's about 55% aftermarket, 45% OE, is that, oh, I'm sorry?

Something like that. Something like that.

Yeah.

I mean, that's the total average. I don't think the military is way off of that, I don't have the exact number here. Actually, excuse me, it's a little higher. It's more like 60%, 30% or 65%, 35%. Close to that.

Yeah. Okay.

So, everybody is waving their hands at me.

55%

Okay. So still 55% like I thought. When I said 55%, Ken, the whole place started to waving their arms.

So about two-thirds, about two-thirds, one-third, then aftermarket versus OEM?

No. No. No. No. Rough 55%, 45% just like the overall business.

Okay. Thanks. And then on the – I appreciate the comments that Terry or color on sort of your shipset content changes on some of the programs. Can you just provide any color on for these increases, I'm assuming obviously, the organic and factoring acquisitions, but how much of these any color on the price versus volume shift or how do you think about sort of your additional content on particular programs? And maybe, a little bit behind what's helping you win some of that in the marketplace?

First, just I'm not sure I got the question right. But just the numbers Kevin gave they were like-like same-store.

Yeah.

They were organic growth. It's not – the 787 content didn't go up because we bought the content. We compared it before and after with the same mix of businesses, so if you follow.

Yeah.

So it's like-like same-store. Why does it go up? Because I think we do a good job. I think we service the account. We're all over the engineering department. I think we are reliable deliverers, the stuff works and we chase it pretty aggressively.

Okay. I mean, I guess...

Sort of the same reason you sell anything. I think the – you're asking me how much is pricing, how much is units, I think?

Well, that's not much to – sorry, not so much units, maybe the share gain, obviously, share gain versus price?

I don't know the answer to that. I can tell you it's not a whole lot of price because it's tough to get price at the OEM. I mean, it's some, but it's not a whole lot. So presumptively, that means there's some share gains, but I have to admit I don't know what the number is.

Okay. That's helpful. Okay. Thank you very much.

And our next question comes from the line of Hunter Keay with Wolfe Research.

Hi, thank you. Nick, I saw in the proxy filed last month that your board extended the deadline for naming Kevin CEO from I think December 2017 to December 2019 along with a few other changes to his comp metrics. Can you talk about what drove that change, and maybe the timing of it? Thank you.

Well, yeah, nothing changed with my contracts, as you may or may not know. My contract presently runs through 2019, and my contract presently anticipates that, at some point, I could become an Executive Chairman. I think we changed it because Kevin became President and CEO here, as you know, and I think it more likely fits with our current thinking, though it mostly just gives us more optionality.

Okay. Good. And then, in terms of the bookings, is there anything – you said you're obviously bullish about the outlook for the year based on the strong bookings, and I get that, but is there anything that you're seeing in terms of the nature of the bookings that are changing? Like, are you seeing airlines buying things maybe like a little bit further in advance, maybe in fear of like limited parts availability or just better demand trends overall, if they're seeing that at all? Anything that gives you even more ...

I don't think so. I can't ...

No?

There's nothing that I could really point out that I have any confidence in in that. And I just want to be sure, I'm not – we're saying, we feel comfortable now with our forecast, our guidance for the year, which is the same as we started the year off with. So, we're not suggesting it looks far more bullish, just the strong bookings give us additional confidence.

Right. Okay. And then, one point of clarification. That 12% bookings over revenue, that's on a year-over-year change basis, right?

On a what?

When you said bookings were 12% ahead of sales, that was on a year-over-year change basis, right?

Yes. That's correct.

Yeah.

Thank you very much.

I think we're mixing questions.

No, we're mixing questions.

We're mixing questions. If you compare the bookings....

Yeah.

So, let me say it in case I got them mixed up. If you look at the bookings this quarter against the bookings last quarter, in the commercial transport and aftermarket, they're up about 12%. Just coincidently, coincidently, if you look at the bookings this quarter against the shipments this quarter, they also are up somewhere around 12%. So, it's to say coincidently around the same number, which may be a little confusing.

Sure. So, what are bookings up year-over-year, then, if that makes...?

12%.

Oh. I thought you just said sequentially. All right, that's fine. 12%, got it. We'll follow up later if I need to. Thank you.

Okay.

And our next question is from the line of Michael Ciarmoli with SunTrust.

Hey. Good morning, guys. Thanks for...

Good morning.

...getting me on here. Nick, can you just talk about – pricing is obviously one of the value drivers. Have you guys seen any change in the marketplace in regards to your pricing? Obviously, we've got some OEM involvement. The airlines are always looking, I guess, to get a better price. And then, just in addition to that, is there any difference in your pricing policy when you're selling a product exclusively through a distributor or direct to a customer?

Let's see. Let me answer that in a couple of ways. I could say, in total – that's not to say it couldn't be account by account, but when you roll the thing up in total, the pricing dynamics and the pricing numbers have not changed substantively for a number of years. It's still roughly we get the same answer. Maybe one unit this year is a little better than another one, but they all tend to put and take and weight up to about the same number, which is one we track very closely. The other question was the distributor versus direct?

Yes.

In the military, we sell to the distributors and brokers where they get the same price. There is no difference there. In the commercial, I'm not sure of the answer to that. I think it's pretty – I don't think there's a material difference.

Okay, okay. That's helpful. And then, just a last one, still some conservatism on the OE side. Have you guys made any changes, or do you plan on, to head count for your overhead?

Well, I think, as you know, we sort of preemptively adjusted the head count about a year ago. I think we may have moved it down a little this quarter, but not by – Kevin, is that right? I think it was down a little.

Yeah.

But not on across the board, just units adjusted as it looked to them like they were a little softer or not a little softer. I think, right now – and this is mostly around the commercial transport cycle and when it might start to soften up, I think, right now, we think we've made about what adjustments we think are appropriate, but we'll keep watching it. Our concern is, how long does the commercial transport OEM cycle hold up. When does it start to soften? And when it does, how does that reflect back into this year? So far, we see no indication and we think, frankly, the numbers we used, which we think are still conservative.

Got it. Okay, perfect. Thanks, guys.

And our next question is from the line of Matt McConnell with RBC Capital Markets.

Thank you, good afternoon.

Hi, and welcome, welcome.

Thanks very much. I appreciate it. So, following up on a prior question about margin improvement on deals, how much of that comes from price changes and what are the other key levers for profit improvement besides price when you're integrating a business?

I mean, it's essentially – it's not consistent across deals. I mean, it's essentially, we get the margin improvement essentially three ways: some price adjustment; some cost adjustment; and, hopefully, if we bought in to something that's growing, we get a little bit of operating leverage by the business growing. If not, the other way we can get it is by looking at the product lines and seeing if we want the profitable ones and the unprofitable ones. But the vast majority of it typically comes from natural market growth, price adjustment and cost adjustment.

Okay. Okay, great. And then, so you bought back a bunch of stock at $225. Should we assume that was just one-time opportunistic or what are the expectations here now that you're after the quarter out of a blackout period?

Yeah, we'll decide that – the capital allocation is something we'll decide based on how things look when it comes time to make that decision. I'd say the buy through the quarter, frankly, we would have bought more, but we were stuck with the 10b5 plan that, essentially, you have to put it on automatic pilot. And it was on automatic pilot when we made the buys and at what amount we could buy. If we had it to reset, we frankly would have put more – we would have set more in it.

Okay. Okay. All right, great. Thanks.

And our next question is from the line of Peter Arment with Baird. Please go ahead. Peter J. Arment - Robert W. Baird & Co., Inc.: Yeah. Thanks. Good afternoon, everyone. Thanks for your time. Nick, just a quick question, and thanks for all the color on the military side. Just in general, with your guidance flat to slightly up this year, and you have – again, I think you mentioned 55% tied to aftermarket, any thoughts on the sensitivity around if readiness spending really ramps up and how that impacts your business?

Oh, yeah, ramp-up in readiness spending is good. At this point, I'd be very cautious about predicting any significant change in this year. They got to get the budget. They got to place the orders, then it takes a while to ship it. It's always hard to guess when the military starts to buy, but I'm being reticent. In the near term, which I'd define as this year, I'd be cautious about assuming any significant change just because of the inertia and time lag. Peter J. Arment - Robert W. Baird & Co., Inc.: Okay. But over the longer term, you obviously would see something?

I would think so, readiness is a – typically readiness means buy more repair parts, buy more services, buy more repairs, all that sort of thing, which is generally good for us. Peter J. Arment - Robert W. Baird & Co., Inc.: Terrific. Thanks for all the color. Thanks.

Yeah.

And our next question is from the line of Gautam Khanna with Cowen and Company. Please go ahead.

Yes, thanks. Good morning or afternoon, I guess. A couple of questions. Nick, you've remarked about the Brazilian portfolio and it has been. I just wonder, do you see any increasing risk of maybe non-economic motivated actors kind of coming in and trying to second source? And specifically, I think of folks like Boeing or the DoD where maybe an immediate profit motive isn't a desire to kind of second source more. Obviously, you have not been hit by PMA parts in a big way, so it's not economics that would drive disruption.

Yeah, I can't – I mean, obviously, I can't – I don't know what somebody might do in the fullness of time. I can say it's a long effort if it was to happen and we haven't seen it. And at least typically with the OEMs, in our contracting basis that looks similar to what it has been in the past generally. But I mean, I just – I don't know what someone might do. We have not seen it. I don't think the math works. I think, it's unlikely but I can't be certain on that. But I'll say again, I don't see it and I haven't seen any significant sign of it.

Okay. And maybe just a follow-up on that. We understand your strategy post acquisition, some of the spot sales get re-priced higher and the like and the contracts as they roll off. How much remaining pricing power is there in years two, three, four post an acquisition? I mean, I just wonder like have you – do you still have more price inelasticity that you could exercise as this actually became a threat so that in year two and three, you just don't have kind of modest inflation type pricing adjustments but rather more significant ones? Do you have unexploited pricing power within the portfolio still?

I can't answer that generically. I mean, that's very fact and circumstance specific. When I think if you particularly as we get bigger, this gets – when you roll everything up, overall prices are pretty consistent – are consistently above inflation, not miles above or the bottom.

Thank you.

And our next question comes from the line of Seth Seifman with JPMorgan.

Thanks very much. Good afternoon. Terry maybe, if you could give – thanks for the information about the tax law changes, do you guys have significant sourcing that comes from outside of the U.S. or is there any light that you can shed on that?

Yeah, I think that's quite difficult. We're decentralized. We have 33 business units. Where they get their source from, it's difficult to estimate it at this point in time. We haven't got gotten that level of detail, but we're just taking this at a very high level, we don't want to spend a ton of time analyzing something that certainly is going to be debated for a long period of time, as they put the new law, if they haven't changed the tax law in place. So, we haven't gotten at that level of inputs, but the exports are pretty significant to us.

And I think, Terry, it's safe to say that when you did the calculation, you assume the reasonable deduct for that?

Yes. Absolutely.

All right. So, if you take the $1.1 billion, and what's the interest, it is about $580 million? Interest is about $580 million ...

Last year it was under $500 million, but this year it was ...

So, it's $580 million. If you take the $1.1 billion, and I'd also say depending on how they treat distributors, that could be higher. You can deduct the fair amount from that and still be at above $580 million.

Right.

That's correct.

Okay. And then, as a follow-up, do you guys expect at some point for F-35 to become one of your top 15 programs and if so roughly when?

It's a good platform. Top 15? I don't want to answer that because I don't – I haven't done the math. I don't know the answer, but it's a good platform. I would expect that someday, it would start to show up on our top 15 or 25, but I don't know when and haven't done the math on it.

Okay. Great. Thanks.

And our next question comes from the line of Rajeev Lalwani with Morgan Stanley. Rajeev Lalwani - Morgan Stanley & Co. LLC: Hi, thanks for the time. Just a simple question for you, really the organic revenues. If you look over the last couple of years, what's been the breakdown between volume and price?

Well, we don't disclose the price. Look, we just don't disclose our price. Rajeev Lalwani - Morgan Stanley & Co. LLC: Just directionally, like are we seeing volumes down?

We just don't disclose the price. As I told you, the prices – the weighted up prices are higher than inflation. We will think of inflation is 3%, but it's not miles higher. Rajeev Lalwani - Morgan Stanley & Co. LLC: Okay. Helpful. And then another just relatively quick question for you. As we look forward and to the extent that aircraft retirement start to pick up or even go down, how does that impact your business, if at all? Is that a risk? Is that an opportunity?

Well, you ought to think of us as we're – when you look at our aftermarket, the commercial aftermarket, which I presume, which you're mostly talking about, you can pretty well think of us as market weighted. So, different people have different definitions with legacy aircraft and what the retirement rates are, but you can almost think of us like the market. That's about how we're weighted. So, if you think 727s are going run off of at a certain rate, that's how we'll run off. Now, remember, we're interjecting new airplanes into the mix every year or two. So as that runs off, something else moves into that old window, as long as the shipset keeps going. But that's the best way to calibrate it, figure were about market weighted. Rajeev Lalwani - Morgan Stanley & Co. LLC: Very, helpful. Thank you, sir.

And our last question comes from the line of Hunter Keay with Wolfe Research. Please go ahead.

Hi, sorry to belabor this, just want to clarify. I have some people emailing me interpreting the comment that the pro forma aftermarket revenue growth is tracking up 12% quarter-to-date despite last year's tough comp. Is that kind of what you're trying to communicate with that 12% comment?

I'm not sure what it is. I'm not sure of your question. We're not...

Okay.

We're trying to get a very specific – the very specific thing we are communicating is the incoming orders or bookings are 12% higher than they were from the same quarter in the previous year. That's one. Number two is, coincidently, the bookings in Q1 are also somewhere around 12% higher than the shipments or the revenues in Q1.

Yeah. Okay, that's fine. Thank you very much. And that's all for me.

Okay, and remind me if I got mixed up in what the pro forma you were talking about last.

That's fine. Thank you. I appreciate it.

And ladies and gentlemen. This concludes our Q&A session. I would like to turn the call back to Liza Sabol for final remarks.

Thank you again for calling in today. And please look for our 10-Q that we will be filing tomorrow.

Ladies and gentlemen, thank you for participating in today's conference call. This concludes the program, and you may all disconnect.